Afternoon analysis 25.09.2015

Janet Yellen supported the dollar. In addition, the US currency was spurred by the report on GDP. Appetite for risk increased as the major central bank revealed their plans. On Friday, the zloty was steady.

The Federal Open Market Committee did not break up with the zero rates policy in September. This was not surprising. Investors shifted their expectations for the first hike further the year as the emerging markets were hit by variety of problems. However, the concerns expressed by the Federal Reserve in its policy statement cited the importance of external development to the US economy.

Investors were worried as the Fed highlighted the importance of the emerging markets to the monetary policy. As a result, the stock markets were under pressure although in theory a more dovish stance of the Fed should have support the risk appetite. Emerging market currencies were also hit. The Fed's stance suggested that the central bank may be more concerned with the economic outlook than it was previously thought.

However, after the FOMC meeting the Fed members have started to dilute the severe stance of the central bank portrayed in the statement. And finally, the anxiety was dispelled by Fed Chair Janet Yellen.

The Fed President said that she supports interest rate hike before the end of the year. In regard to the emerging markets and the overall global situation, she cleared out that the central bank is not expecting these factors to alter the monetary policy. Of course, it may change, but it is not very likely.

As a result, the Federal Reserve has changed its stance just a week after its key meeting. Although the Fed's stance is more hawkish, it is not expecting a severe deterioration in the economic situation. It was a positive factor for the stock markets and risk assets.

A similar stance was presented by St. Louis Fed President James Bullard on Friday. He said that the case for tightening is strong. Bullard assessed that essentially the FOMC's goals have been already met. As a result, it will be prudent to normalize the monetary policy in the medium term.

Appetite for risk

Since the FOMC's meeting the market sentiment has been negative. However, the landscape improved as the Fed limited anxiety about the future of the global economy. Moreover, the European Central Bank provided some important clues. Although the Frankfurt-based institution is not going to provide more easing, a clear outlook is calming investors.

Moreover, the US reports supported the sentiment. Final GDP report showed that the economy expanded 3.9 percent in the second quarter (annualized). In addition, the service PMI index exceeded the forecast. And the University of Michigan sentiment index was neutral.

The zloty did not exploit the impact of the broad market improvement. The Polish currency remained at the low level against the euro, but gained against the pound. The current market environment should support the zloty. However, the appreciation potential of the Polish currency has been recently deteriorated by weak economic reports.